Business Loans

Corporate Loan Application: What Banks Seek in Bank Statements

Lina Tay
March 19, 2024

Business loan applications can be an arduous, time-consuming process, especially if you’re applying for the first time. As such, it is necessary to become familiar with the application procedures in order to help ease the process, and increase the chances of your application being approved.

Documents are an essential part of this process because they play a role in helping lenders determine the conditions of the loan agreement, including the decision on whether to approve your corporate loan application at all.

What Documents are Required for a Corporate Loan?

Banks and other financial institutions generally require about 5 different documents from applicants. These are:

  • Your company’s ACRA Business profile
  • The notice of assessment (NOA) of all company directors for the past 2 years
  • The latest credit report for all company directors from Credit Bureau Singapore (CBS)
  • Company’s financial statements for the last 2 years
  • Company’s bank statements for the past 6 months.

Whilst all these documents are equally important, we’re going to be focusing on bank statements. This covers the bank statements for all the corporate accounts you may have, including savings accounts, fixed deposit accounts, current accounts, chequing accounts, credit card accounts and more.

Bank statements are a crucial part of your loan application, sourced directly from the bank where you hold your accounts. If your business operates through multiple accounts or different types of accounts, it's important that you provide statements for each, ideally covering a six-month period from the time of your application.

These statements highlight your company’s financial activities. It details your revenues, expenses, and the end-of-month balance. Banks and other lenders look through these documents with a keen eye, searching for specific elements:

Cash Flow Insight

Your bank statements are a window into the financial health of your business; they show the in and outflow of your income and expenditure. A good cash flow not only signals that your business is performing well but also that you have the means to meet your loan commitments.

Your cash inflow is also used as a gauge of your revenue and it gives banks an estimate of your business size. Therefore it is often a challenge for cash heavy business to apply for a loan as their revenues are not captured in the bank statements. Also if you are still using cash, it is time for you to switch to PayNow.

This factor is important, as it can play a crucial role in whether the lender will offer more favourable terms and conditions on your loan.

Financial Management Style

The way you manage your company's finances is also revealed in these statements. They detail where your income is sourced and how it is allocated, which altogether provides lenders with an idea of your financial decision-making.

Some things things that lenders may even observe is the location where cash is withdrawn at ATMs. For example if a business in Ang Mo Kio keeps withdrawing cash at Marina Bay Sands, that should ring some alarms for lenders.

Prudent and strategic financial choices indicate a responsible approach to managing funds, while unpredictable spending patterns could raise red flags about your financial wisdom.

Financial Stability

Bank statements are a reference point of your business's financial stability. A consistent record of healthy income, good spending, and a growth pattern can boost your chances of securing a loan. Lenders are more likely to provide loans with favourable terms, like lower interest rates, to businesses that demonstrate financial stability and promising growth.

Stability also means that the business is prepared for sudden shocks in the revenue or expenses. This means having a good amount of buffer cash for rainy days. If banks observe that balances fall to dangerously low levels like anything less than 3 digits, it could mean that the business is playing it a little too tight. A good bufffer for your bank balances is to have at least 3 times of your monthly expenses or 6 times of your loan obligations.

To put it simply, your bank statements are not just a record of transactions but a story of your business's financial journey. The better the story, the better your chances of securing a loan with advantageous terms.

How to Improve Your Financial Statements

When it comes to submitting your bank statements, there are certain things you can do to ensure that they give bankers an accurate impression of your business. These steps will help prevent misunderstandings and provide lenders with a clearer understanding of your financial standing.

Review Your Statements Before Submission

Prior to submitting, it is important to review your bank statements, or have them examined by a professional consultant. This review will help you identify any trends or patterns that may cause concern. While you can't alter the contents of the statement, being aware of and prepared to discuss any notable items is crucial, especially if lenders request explanations. If your bank statements are not showing any favourable patterns, it would help to wait for a few months until your finances show more consistent positive trends.

Explain Any Unusual Trends

Fluctuating incomes from month to month is to be expected of any business. However, if there are several months of declining sales and reduced income, you should be ready to provide an explanation to the bank officer when the time comes. Addressing this in an open and transparent manner is the best approach.

Highlight Positive Performance

Emphasise any positive aspects evident in your bank statements. This can be an increase in growth, increased returns on investments, or cost-saving measures that have improved your financial position. These positive trends will reinforce the perception that your business is a growing, and financially healthy entity.

Include Other Related Financial Occurrences

When you go over your bank statements, try to link them with important financial decisions you made. For instance, you may have encountered a major issue in your production line and had to allocate a large portion of your expenditure towards overcoming it. Perhaps you invested a large amount of money in systems and machinery that increased your production capacity. Such context can provide a more comprehensive understanding of your financial decisions and their impact.

The Bottom Line

When applying for a corporate loan, the officer in charge of your case will engage you for a second interview after an initial call and the submission of your application form and supporting documents. This second conversation is when you should explain the occurrences in your bank account as clearly and honestly as possible. Banks and other types of lenders expect that your bank statements reflect your company’s financial standing, as well as its management style.

Lendingpot exists to help companies get the best outcomes in approvals and pricing. We’ve developed a system that redefines the lending paradigm; empowering borrowers with a wide variety of options from competing financial institutions. Apply now to discover how we can help your business achieve its financial goals.

Leading digital loan marketplace Lendingpot connects SMEs to its network of 45 lenders comprising relationship managers from banks, financial institutions, and private and peer-to-peer lenders in Singapore. It aims to help SMEs overcome the information asymmetry problem and lack of transparency prevalent in the SME financing sector by offering SMEs financing options such as business term loans, property loans, revenue-based financing, credit lines, working capital loans, bridging loans, invoice financing, and more.

About the author

Lina heads up all things marketing and branding at Lendingpot. With a keen aesthetic eye, she believes in the use of design to communicate with our SME community and aspires to turn Lendingpot into a household name. Out of work, she is an avid camper and appreciator of nature’s best works.

Bank Statement
Corporate Loan
loan application
business loan

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